Form 1099-MISC: Miscellaneous Income (2014) — A Simple Guide
Form 1099-MISC is one of the most common tax documents you'll encounter if you're self-employed, receive rental income, or get paid for services outside of traditional employment. Think of it as the IRS's way of tracking income that doesn't appear on a regular W-2 wage statement. This guide breaks down everything you need to know about the 2014 version of this form in plain English.
What Form 1099-MISC Is For
Form 1099-MISC reports various types of income payments made during the tax year that aren't salary or wages. Businesses use it to tell the IRS—and you—about money they paid you for things like freelance work, rent, royalties, prizes, or professional services.
The form is required when a business pays you $600 or more during the year for services, rents, prizes, awards, medical payments, or crop insurance proceeds. For royalties or broker payments in lieu of dividends, the threshold is just $10 or more. There's also a special reporting requirement for attorneys' fees and gross proceeds paid to attorneys of $600 or more IRS.
Importantly, Form 1099-MISC is only issued for payments made "in the course of trade or business." Personal payments between friends or family members don't need to be reported. Payments to corporations generally don't require a 1099-MISC either, with key exceptions including medical and health care services, attorneys' fees, and fish purchases for cash.
When You’d Use Form 1099-MISC
Understanding the deadlines helps you stay compliant or fix mistakes:
Original Filing Deadlines for 2014
- To recipients (Copy B): February 2, 2015 (or February 17, 2015 if reporting payments in boxes 8 or 14)
- To the IRS (Copy A): March 2, 2015 for paper filing; March 31, 2015 for electronic filing
Late Filing
If you missed the deadline, file as soon as possible. The IRS imposes penalties for late filing that increase based on how late the form is—ranging from $30 to $100 per form, with higher penalties if the delay appears intentional. However, filing late is always better than not filing at all.
Amended/Corrected Returns
Made a mistake? You can file a corrected Form 1099-MISC by checking the "CORRECTED" box at the top of a new form. Include the correct information and send it to both the IRS and the recipient. Common reasons for corrections include wrong amounts, incorrect taxpayer identification numbers (TINs), or payments reported in the wrong box. There's no separate deadline for corrections—just file them as soon as you discover the error.
Key Rules or Details for 2014
Several important rules governed Form 1099-MISC in 2014:
- The $600 Rule: Most payments require reporting only if they total $600 or more during the year. This includes nonemployee compensation, rents, services, prizes, and other income payments.
- The $10 Rule: Royalty payments and broker payments in lieu of dividends or tax-exempt interest must be reported if they're $10 or more.
- Trade or Business Requirement: You only file Form 1099-MISC for payments made in the course of your trade or business. Nonprofit organizations, government agencies, trusts, and farmer cooperatives are included as "businesses" for this purpose.
- Corporate Exception: Generally, you don't report payments to corporations. However, this exception doesn't apply to medical and health care payments (box 6), attorneys' fees (box 7), gross proceeds to attorneys (box 14), or substitute payments in lieu of dividends (box 8).
- Backup Withholding: If a recipient fails to provide their TIN or provides an incorrect one, you must withhold 28% of the payment as backup withholding and report it in box 4.
- What's New in 2014: The IRS deleted boxes 11 (Foreign tax paid) and 12 (Foreign country or U.S. possession) from the 2014 form. This information is now reported on Form 8966, Foreign Asset Tax Compliance Act Report IRS.
Step-by-Step (High Level)
Completing Form 1099-MISC is straightforward once you understand the basic structure:
Step 1: Gather Information
Collect the recipient's legal name, address, and taxpayer identification number (TIN)—usually their Social Security Number for individuals or Employer Identification Number for businesses. Use Form W-9 to request this information before making payments.
Step 2: Identify the Correct Box
The form has 18 numbered boxes, each for different payment types. Common ones include Box 1 (Rents), Box 2 (Royalties), Box 3 (Other income), Box 6 (Medical and health care payments), Box 7 (Nonemployee compensation), and Box 14 (Gross proceeds paid to an attorney). Putting amounts in the wrong box causes headaches for the IRS and recipients.
Step 3: Complete Payer Information
Enter your business name, address, and federal identification number (EIN) at the top of the form.
Step 4: Complete Recipient Information
Fill in the recipient's information and TIN. Double-check accuracy—incorrect TINs trigger IRS notices.
Step 5: Enter Payment Amounts
Report the total amount paid during the calendar year in the appropriate box(es). Report gross amounts before any deductions.
Step 6: Report Backup Withholding
If you withheld taxes under backup withholding rules, enter the amount in box 4.
Step 7: Distribute Copies
Send Copy A to the IRS (with Form 1096 if filing by paper), Copy B to the recipient for their tax return, and keep Copy C for your records.
Common Mistakes and How to Avoid Them
Mistake #1: Reporting in the Wrong Box
Putting payments in the wrong box is the most common error. For example, reporting independent contractor payments in box 3 instead of box 7, or confusing rent (box 1) with nonemployee compensation (box 7). Solution: Read the specific instructions for each box carefully and understand what type of income goes where.
Mistake #2: Missing or Incorrect TINs
Filing with a missing or wrong taxpayer identification number triggers IRS notices and potential penalties. Solution: Always get a completed Form W-9 from recipients before making payments. If someone refuses, you must apply backup withholding.
Mistake #3: Not Filing When Required
Some payers mistakenly think they don't need to file for payments to corporations or for amounts just over $600. Solution: Understand the corporate exceptions (medical, legal services, fish purchases) and track all payments throughout the year to catch those crossing the $600 threshold.
Mistake #4: Missing Deadlines
Late filing happens when businesses lose track of the different deadlines for recipients versus the IRS. Solution: Mark your calendar well in advance. Aim to complete all forms by late January to meet the February deadlines.
Mistake #5: Forgetting About Backup Withholding
When a recipient doesn't provide a TIN, payers sometimes pay the full amount without withholding. Solution: Implement a policy requiring Form W-9 before first payment, and understand when backup withholding applies.
Mistake #6: Confusing Employees with Independent Contractors
Paying someone as an independent contractor (1099-MISC) when they should be an employee (W-2) creates major tax problems. Solution: Review IRS guidelines on worker classification or consult a tax professional when uncertain.
What Happens After You File
IRS Matching
The IRS matches the Form 1099-MISC you file with the income reported on the recipient's tax return. If there's a discrepancy, the recipient may receive a notice asking them to explain or pay additional taxes.
Recipient Reporting
Recipients use the information on Form 1099-MISC to complete their tax returns. Box 7 amounts typically go on Schedule C (business income) and are subject to self-employment tax. Rental income from box 1 usually goes on Schedule E. Other boxes have their own reporting requirements.
Record Keeping
Keep copies of all Forms 1099-MISC for at least three years from the filing date. The IRS recommends keeping them even longer as part of your business records.
IRS Notices
If you made an error, you might receive a notice. Common ones include CP2100/CP2100A for incorrect TINs or notices about missing forms if your filing doesn't match payment records from other sources. Respond promptly to any IRS correspondence.
Penalties for Non-Compliance
Failure to file, late filing, or incorrect information can result in penalties. For 2014, these ranged from $30 to $100 per form depending on how late, with higher penalties for intentional disregard.
FAQs
Q1: Do I need to file 1099-MISC for payments made by credit card or PayPal?
No. For 2014, payments made with credit cards, debit cards, gift cards, or through third-party networks like PayPal are reported on Form 1099-K by the payment processor, not Form 1099-MISC by you. However, if you paid someone $600 or more by check or cash, you still need to file Form 1099-MISC.
Q2: What if I paid someone $595—do I still need to file?
No. If the total payments are under $600 for the year, you generally don't need to file Form 1099-MISC. However, keep records of all payments in case you need them later or if additional payments push the total over $600.
Q3: Can I file Form 1099-MISC electronically?
Yes, and the IRS encourages electronic filing. If you're required to file 250 or more Forms 1099-MISC, you must file electronically. Electronic filing also gives you an extended deadline—March 31, 2015, instead of March 2, 2015, for the 2014 tax year. You'll need IRS-approved software that meets Publication 1220 specifications.
Q4: What if the recipient refuses to give me their TIN?
If someone refuses to provide their taxpayer identification number on Form W-9, you must begin backup withholding at the 28% rate on all payments. Report the gross payment in the appropriate box and the withheld amount in box 4. The recipient is subject to penalties for failing to provide their TIN.
Q5: Do I report reimbursements for expenses on Form 1099-MISC?
It depends. If you're reimbursing an independent contractor's expenses and the contractor must account to you for those expenses (an accountable plan), don't include reimbursements on Form 1099-MISC. However, if you pay a flat amount that includes both services and expenses without requiring detailed accounting, report the entire amount.
Q6: What's the difference between boxes 3 and 7?
Box 7 is for nonemployee compensation—payments for services performed by someone who isn't your employee. These amounts are usually subject to self-employment tax. Box 3 is for "other income" that doesn't fit elsewhere, such as prizes, awards, or certain settlement payments. Items in box 3 may not be subject to self-employment tax.
Q7: I made a mistake on a 1099-MISC I already sent. What do I do?
File a corrected Form 1099-MISC as soon as possible. Check the "CORRECTED" box at the top, fill out the form with the correct information, and send copies to both the IRS and the recipient. Include a brief explanation with the recipient's copy so they understand the change.
Additional Resources
- 2014 Instructions for Form 1099-MISC
- 2014 Form 1099-MISC
- 2014 General Instructions for Certain Information Returns
This summary provides general guidance based on IRS publications for tax year 2014. Tax situations vary, so consult a qualified tax professional for advice specific to your circumstances.
